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TREASURY PROCESSES IN MOTIONHeinz Bähni - SVP Group Treasurer
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TREASURY
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TREASURY
Wikipedia: The Treasury-Islands is small archipelago in the northwest of the Pacific Solomon-Islands. The Islands are politically attached to the Western Province of the Solomon Island State.
MY COMMENTS ARE INFLUENCED FROM THE PERSPECTIVE OF AN INTERNATIONAL GROUP WITH SEVERAL SUBSIDIARIES ABROAD.
TREASURY PROCESSES IN MOTION …
TREASURY PROCESSES IN MOTION …
... AND HOW SGS OVERCAME THESE CHALLENGES
ABOUT US
• World’s leading inspection, verification, testing and certification company
• Experts at:• Providing
competitive advantage
• Driving sustainability
• Delivering trust
• Working across industries and geographies
SGS HISTORY
•Founded in 1878 as a grain inspection company
•Expanded beyond agriculture in early and mid 20th century to:•Minerals•Oil, gas and chemicals•Consumer goods•Industrial sector
•Listed in 1981
•Growth and diversification continued throughout last half of the century
•Current structure of ten business units initiated in 2001
OUR VISION
•We aim to be the most competitive and the most productive service organisation in the world.
•Our core competencies in inspection, verification, testing and certification are being continuously improved to be best-in-class. They are at the heart of what we are.
•Our chosen markets will be solely determined by our ability to be the most competitive and to consistently deliver unequalled service to our customers all over the world.
8© SGS SA 2014. ALL RIGHTS RESERVED.
GLOBAL REACH AND LOCAL SUPPORT
80,000 employees Over 1,650 offices and laboratories operating all over the world.
AMERICAS 440 Offices &
Laboratories17,700 Employees
EUROPE , AFRICA & MIDDLE EAST
825 Offices,Labs & Multi-labs
32,000 Employees
ASIA PACIFIC 385 Offices, Labs &
Multi-labs 30,300 Employees
9© SGS SA 2014. ALL RIGHTS RESERVED.
CHALLENGES
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…SOME (TREASURY) CHALLENGES
Diversity SGS is represented in over 140 countries A large number of thin capitalisation, transfer pricing
regulations and exchange controls are to be observed We actively manage over 90 currencies Establish Treasury knowledge in all countries is difficult We need, in most countries, a bank with a branch network
which means that we manage over 200 bank accounts in the Group
Cost pressure Treasury is not a core competence at SGS
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HOW DO WE SOLVE THE CHALLENGES
Legal- and Compliance SGS is active in over 140 countries, which represents major
requirement for us to obey the laws and regulations (thin-capitalisation & transfer pricing regulations, exchange controls)
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HOW DO WE SOLVE THE CHALLENGES
Legal- and Compliance SGS is active in over 140 countries, which represents major
requirement for us to obey the laws and regulations (thin-capitalisation & transfer pricing regulations, exchange controls)
SGS solution When awarding a loan in "difficult" countries some
information (no legal opinion) is obtained by an external consultant
Interest payments must always be made which gives a certain security from the perspective of foreign exchange controls, which has been awarded in accordance with local credit regulations
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CHALLENGES
Diversity We actively manage over 90 currencies
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CHALLENGES
Diversity We actively manage over 90 currencies
SGS solution We require that all companies do a continuous and rigorous
assessment of currency risks Simple rules (Hedging policy) Simple instruments (assets / loans / spot & forwards)
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CHALLENGES
Diversity Our country organizations are often very small in poorly
developed financial markets (Illiquid, no financial instruments, etc.)
Establish Treasury knowledge in all countries is therefore very difficult
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CHALLENGES
Diversity Our country organizations are often very small in poorly
developed financial markets (Illiquid, no financial instruments, etc,)
Establish Treasury knowledge in all countries is therefore very difficult
SGS solution We have developed the concept of the Regional Treasury
Manager (RTM)
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North AmericasRutherford / USA
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North AmericasRutherford / USA
South AmericaNeuchâtel / CH
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North AmericasRutherford / USA
South AmericaNeuchâtel / CH
AfricaGeneva / CH
EuropeGeneva / CH
Easter Europe and Middle EastGeneva CH
South Eastern EuropeGeneva / CH
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North AmericasRutherford / US
South AmericaNeuchâtel / CH
AfricaGeneva / CH
EuropeGeneva / CH
Easter Europe and Middle EastGeneva CH
South Eastern EuropeGeneva / CH
South East Asia Pacific / East Asia / China / Hong KongSingapore
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TASKS OF THE RTM
Assist and actively advise the individual subsidiaries in the region with an efficient liquidity and currency management. Minimizing currency risk and improving liquidity management
to improve affiliate and Group net result
The RTM’s responsibility include the following areas: Daily monitoring of the affiliate’s currency risks Conduct foreign exchange hedges on behalf of the affiliate Support for the accounting of financial transactions Assessments of ST and LT financing needs Support concerning Group projects
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CHALLENGES
Diversity We need, in most countries, a bank with a branch network
which means that we need to manage more than 200 bank relationships and over 1,300 accounts in the Group
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CHALLENGES
Diversity We need, in most countries, a bank with a branch network
which means that we need to manage more than 200 bank relationships and over 1,300 accounts in the Group
SGS solution
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CHALLENGES
Diversity Treasury is not a core competency at SGS. That’s why it is
"difficult"• to find and remunerate qualified staff• to make investment in Treasury Management Software
SGS solution As SGS in other areas had made very good experience with
outsourcing, it was decided in 2002, to outsource also the non-strategic parts of the Treasury Function
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WHAT HAVE WE OUTSOURCED?
OUTSOURCED
Our model of outsourcing is a
Business Service Provider
(BSP)
WITHIN CLEAR DEFINEDOPERATIONALGUIDELINES
Risk management
(Forex and Interest)
Cash-management
(Loans and deposits with
subsidiaries and banks, cash-
pools, netting)
Back-Office(Payments,
confirmations, accounting
Middle Office(Reports, analyses)
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IN-HOUSE BANK
GROUPTREASURY
LOCAL BANK
• Foreign exchange• Loans within agreed limits
and structures• Deposits• Netting• Settlement• Cash-Pool management• Netting process• Payment process
OUTSOURCER
• Business support• New Bank relations• Parental support
(Guarantees, Letter of support, etc.)
• New Funding• Treasury Controlling
• Policies• Guidelines• Limits• Instructions• Daily reporting
SUBSIDIARY
GROUP CONTROLGROUP TAXATION BANKS
Payments
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WHAT SHOULD NOT BE OUTSOURCED
NOT BE OUTSOURCED
Policies
Negotiations re terms and
conditions
Defining credit lines
for subsidiaries
Treasury Controlling
Bank relations
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EXPERIENCES
EXPERIENCES
As a Group Treasurer I can use my time
differently
The Outsourcer is “my” Front- Middle and Back-Office
I have the same control of
Treasury activities as
with my own organisation
It is important that the
Outsourcer “thinks and feels” like a Corporate Treasurer
Communication
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TREASURY DEVELOPMENT SGS
Past (from approx. 1970 – 1980)•Telephone and telex trade•“Simple" financial instruments•Cash management products in the initial phase•Comprehensive regulations in most emerging and developing countries
Today•Electronic trading platforms•"Complicated" financial products•Efficient cash management products•Reduced regulation•Compliance
Future•Compliance•Centralization of treasury activities
•Visibility•STP•Mobil phone Treasury•E-invoicing•Swift Net•Supply chain funding
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Past (from approx. 1970 – 1980)•Telephone and telex trade•“Simple" financial instruments•Cash management products in the initial phase•Comprehensive regulations in most emerging and developing countries
Today•Electronic trading platforms•"Complicated" financial products•Efficient cash management products•Reduced regulation•Compliance
Future•Compliance•Centralization of treasury activities
•Visibility•STP•Mobil phone Treasury•E-invoicing•Swift Net•Supply chain funding
decentralized Treasury
Centralized Treasury• In-House Bank•Outsourcing•Regional Treasury Manager model•Partial Visibility
Future• In-House Bank•higher Automation•Payment Factory•Visibility•Mobile Payments•Global Credit card payments
TREASURY DEVELOPMENT SGS
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CONCLUDING OBSERVATIONS
Many treasury departments (also in multinationals) have in today's changing environment only incomplete information and control of positions and risks.
Of course, this applies particularly for smaller companies, where usually lacking technology, people and resources to Treasury optimization.
In my view, these gaps in today's environment especially dangerous. The interest rate and foreign exchange markets will remain volatile, credit markets remain challenging, globalization will increase and thus accelerate the pace of the economy. This in turn leads to potentially higher financial risks.
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ACADEMIC WORLD
Companies must review their Treasury departments on organizational structures, processes, policies and technologies more than ever.
Unfortunately, the field of treasury management has received relatively few attention to academic level in comparison to finance and accounting.
It would be nice if this would change in the future and with the IFZ and the Swiss Certified Treasurer a suitable platform is certainly there.
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CONCLUDING REMARKS
SGS is not claiming to have “the best Treasury model in the world”.
It has developed a model, which suits SGS best in the current environment (e.g. risk appetite of the Shareholders).
Improvements of the model is possible (and needed) but you might know, that this is a “never ending story” .......
Our next big challenges are the choice of a pan-European cash management bank and POBO (Payments on behalf...) COBO (Collections on behalf is not yet as developed as we would wish and therefore it is a project for 2017.